Sri Lankan firms, to survive in today's post credit crunch environment triggered by the global financial crisis, must revisit their business models.
They must become more creative, proactive and innovative while remaining 'lean and mean', especially since their markets may never be the same again, says Deputy Chairman of the Ceylon Chamber of Commerce, Dr. Anura Ekanayake. He added that businesses which start to sink may not have time to plug the hole, so it would be prudent to start planning for every possible outcome now. Further, Dr. Ekanayake indicated that to weather the potential impact of this economic crisis the state would have to cut expenditure, control imports, devalue currency, stimulate domestic production and go for multilateral aid. In fact, any one of these measures may not be enough and a combination of all of the above could be needed.
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| The panellists |
Dr. Ekanayake’s comments were made at a panel discussion on the global economic crisis and its impact on Sri Lanka, where he was joined by Assistant Governor of the Central Bank, Dr. Uthum Herat, and economist Dr. Sirimal Abeyratne from the University of Colombo. The discussion was organised by The Sunday Times Business Club and held at the Cinnamon Grand, the club’s host hotel. Hameedia’s is also a club sponsor.
According to Dr. Herat, for now there may be little impact for Sri Lankans since the government had already put in place a series of measures to limit risk. These include close supervision of banking institutions, understanding location risks and instruments, monitoring sector exposure (such as in the construction and housing industries), increasing bank provisions, limiting foreign exposure of banks, increasing capital, monitoring liquidity positions, etc.
Indicating that outflows from government paper proved the most significant immediate impact to the economy as potentially US$600 million could be withdrawn, Dr. Herat noted that this outflow and even additional pressures such as foreign exchange liquidity outflows, stock market decline and falling world prices could not negate expectations of net foreign inflows overall. Going forward, Sri Lankans could also expect downward pressure on exports such as garments and tea, a decline in tourism, possible negative effects on remittances, and even a positive impact from lower commodity prices for oil and food. Meanwhile, Dr. Abeyratne noted the significance of indirect impacts due to falling aggregate demand and falling world prices, which would lead to a decline in the export sector, tourism and foreign direct investment as well as increases in the costs associated with borrowing.
However, it was the long term effects on growth and stability which he stressed on most: Growth, income and employment could not be sustained; trade deficit would widen; and the government's budgetary management would lead to higher inflation, an increase in the interest rate and depreciating exchange rates.
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